At yesterday’s summit, leaders agreed to explore a “limited”
treaty change to deliver stronger economic governance within the
eurozone. Speaking following last night’s meeting of EU leaders,
Prime Minister David Cameron said: “I don’t think this is the
right time to legislate for an in/out referendum. This is the
right time to sort out the eurozone’s problems, defend your
national interest and look to the opportunities there may be in
the future to repatriate powers back to Britain. Obviously the
idea of some limited treaty change in the future might give us
that opportunity.” However, Cameron stressed that, “Treaty change
can only happen if it is agreed by all the 27 member states of
the European Union.”

Cameron’s insistence that the discussions involve all 27 members
and not just the eurozone states angered French President
Nicolas Sarkozy, who said, “You have lost
a good opportunity to shut up”. He added, “We are sick of you
criticising us and telling us what to do. You say you hate the
euro and now you want to interfere in our meetings.”

In Saturday’s Telegraph, William Hague also ruled out an
in/out referendum. Instead, he argued that: “The entire
Government is agreed that we must first make sure that eurozone
integration would not allow countries in the single currency to
impose decisions on countries outside it and, second, ensure that
Britain’s leading position in financial services is recognised
and protected. Beyond that, we should seize opportunities as they
arise to reduce the EU’s powers in Britain in other areas, most
importantly in social and employment laws, where EU interference
is doing real harm.”

Little agreement at EU summit marred by arguments between
EU leadersEU leaders agreed a broad €108bn plan to
recapitalise European banks at the EU summit over the weekend,
despite reports suggesting the meetings were marred by a series
of arguments between European leaders. Under the plan, which is
expected to be formally announced on Wednesday, European banks
will need to find €108bn in new capital over the next six to nine
months, initially through private funding with state and European
funds as a last resort, although the final details will depend on
the level of private sector involvement in the second Greek
bailout.

Despite not reaching a final agreement on how best to leverage
the EFSF, the eurozone’s bailout fund, reports suggest the
discussions are now focused creating a special purpose fund which
would attempt to attract funding from the IMF and global
investors to purchase the debt of struggling eurozone countries,
while another fund running in tandem would insure parts of new
issues of these countries’ sovereign debt. EU Commissioner Karel
de Gucht told Belgian Radio 1 that it is likely that the
EFSF can be increased to €1.25tr, while Bundesbank President Jens
Weidmann warned in Bild am Sonntag that increasing
leverage “obviously increases risk”.

The FT reports that German Chancellor Angela Merkel and French President Nicolas
Sarkozy had a significant disagreement with Italian Prime
Minister Silvio Berlusconi after failing to receive sufficient
assurances over the Italian government’s commitment to cutting
its debt and deficit levels and instituting economic reforms.
Following their meeting Berlusconi announced a plan to increase
the retirement age to 67, putting him on a collision course with
junior coalition party Lega Nord. Sarkozy was reportedly also
angered by the fact that Italy’s ECB executive board member
Lorenzo Bini-Smaghi had not been appointed as the next Italian
central bank governor by Berlusconi, a decision that risks
leaving France without a representative on the board when
Jean-Claude Trichet leaves the ECB
Presidency at the end of October. Open Europe’s Raoul Ruparel is
quoted saying, "Clearly [choosing ECB posts] has become highly
politicised and subject to horse-trading...That's a worrying
trend."

Meanwhile, European officials are still locked in talks with the
banking sector over the size of write downs which bondholders
should take under the second Greek bailout, with EU officials
pushing for a 60% write down. The final report of the EU/IMF/ECB
review team, which was leaked over the weekend, suggested that
even with a 60% write down, Greece’s debt to GDP ratio would
still be 110% in 2020. The report also stated that the size of
the second Greek bailout would need to be increased.

Belgian daily De Tijd reports on Open Europe's
discussion in Brussels with German Professor Markus C. Kerber,
who has sued the ECB. Kerber is quoted saying that "[ECB
President Jean-Claude] Trichet claims that the ECB has sterilised
its increase of the monetary base by removing an equivalent
amount as the portfolio of purchased government bonds out of the
market through short term deposits. But that's a lie! Banks can
just simply present those the next day as collateral, in exchange
for money."Open Europe Events

EU’s revised Mifid directive opens loophole on kickbacks
to financial advisers
The FT reports that proposals contained in the European
Commission’s draft Mifid II directive could undermine
moves taken by national regulators to clamp down on cash payments
to financial advisers. In City AM, Conservative MEP Syed
Kamall writes that: “I share concerns expressed that the rules on
third countries may stop institutions from emerging markets
advertising their services in the EU, which could
disproportionately affect London”, and adds that “Esma
[European Securities and Markets Authority] is
being given too much power to enforce the proposed new rules. As
a consequence, the regulator could become the policeman of the
rulebook rather than its interpreter. We must ensure that it is
not given discretionary powers over individual firms.”
FT
City AM: KamallOpen
Europe Research

The Mail reports that Tesco has cut back on
temporary staff following this month’s introduction of the EU’s
Agency Workers Directive, which gives temporary employees the
same rights as full-time staff after 12 weeks in a job.
Separately, the Sunday Telegraph reported that following
discussions between Tesco and Mainstream, a recruitment agency
supplying truck drivers, a number of temporary workers had agreed
to sign contracts waiving their rights under the
Directive.Mail
Sunday Telegraph

German Justice Minister Sabine
Leutheusser-Schnarrenberger has expressed fears that if the FDP
were to vote against the establishment of the European Stability
Mechanism in an internal party vote, this would make the FDP
“unable to act” within the governing
coalition.AFP

Le Parisienreports that due to
unfavourable economic conditions the French government has had to
reduce its growth forecast and may need to find at least an
additional €10bn in savings or tax revenues to balance the budget
in 2012.
Le Parisien

UK

Speaking on the BBC’s Andrew Marr show
yesterday, Scotland’s first minister and SNP leader Alex Salmond
said that an independent Scotland would continue to use sterling
as its currency until “it was to Scotland's economic advantage to
join the Euro.”Andrew
Marr Show: Salmond

Lord Adair Turner, Chairman of the FSA and co-author of a
2002 paper entitled ‘Why Britain should join the Euro’, which
argued that“joining the euro would increase our
incomes and our standard of living”,has now
said:"I got it wrong.”Observer
CityAM 2